Question 1

The break-even point is the level of activity at which operating income is equal to cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 2

Raymond & Sons generates an average contribution margin ratio of 45% on its sales.Management estimates that by spending $3,500 more per month to rent additional facilities,the business will be able to increase operating income by $10,000 per month.Management must feel that the additional facilities will increase monthly sales volume (in dollars)by:

Accepted Answer

A) $4,725. 
B) $8,775. 
C) $13,500. 
D) $30,000. 
A) $4,725. 
B) $8,775. 
C) $13,500. 
D) $30,000.

Question 3

In the area of cost-volume-profit analysis,the contribution margin ratio shows how much each dollar of sales contributes to:

Accepted Answer

A) Cover the fixed costs of the business and providing operating income. 
B) Fixed expenses and variable expenses. 
C) Variable expenses and interest charges. 
D) Variable expenses when production is at normal capacity. 
A) Cover the fixed costs of the business and providing operating income. 
B) Fixed expenses and variable expenses. 
C) Variable expenses and interest charges. 
D) Variable expenses when production is at normal capacity.

Question 4

Variable costs would include:

Accepted Answer

A) Insurance expense. 
B) Amortization expense. 
C) Sales commission expense. 
D) Executive salaries expense. 
A) Insurance expense. 
B) Amortization expense. 
C) Sales commission expense. 
D) Executive salaries expense.

Question 5

Which of the following is an example of a fixed cost for an airline?

Accepted Answer

A) Depreciation on the corporate headquarters. 
B) Fuel costs. 
C) Income taxes expense. 
D) Passengers' meals. 
A) Depreciation on the corporate headquarters. 
B) Fuel costs. 
C) Income taxes expense. 
D) Passengers' meals.

Question 6

The contribution margin ratio is computed as:

Accepted Answer

A) Sales minus variable costs,divided by sales. 
B) Fixed costs plus variable costs,divided by sales. 
C) Sales minus fixed costs,divided by sales. 
D) Sales divided by variable costs. 
A) Sales minus variable costs,divided by sales. 
B) Fixed costs plus variable costs,divided by sales. 
C) Sales minus fixed costs,divided by sales. 
D) Sales divided by variable costs.

Question 7

The Davidson Company's breakeven point in units is 40,000.Assuming that variable costs are 60% and fixed costs are $300,000,what is the company's projected operating income if sales are $1,000,000?

Accepted Answer

A) $750,000. 
B) $100,000. 
C) $250,000. 
D) $400,000. 
A) $750,000. 
B) $100,000. 
C) $250,000. 
D) $400,000.

Question 8

Economies of scale can be achieved by using facilities more intensively.

Accepted Answer

A) True 
 B)False

Question 9

Using cost-volume-profit formulas
Gary Corporation manufactures a single product.The selling price is $104 per unit,and variable costs amount to $78 per unit.The fixed costs are $36,000 per month (round any units to the next highest full unit).
(a)What is the contribution margin per unit? $_______________ per unit
(b)What is the contribution margin ratio? _______________%
(c)What is the monthly sales volume (in dollars)at the break-even point? $________________
(d)How many units must be sold each month to earn a monthly operating income of $32,000? _______________ units
(e)What is the monthly margin of safety (in dollars)if 3,000 units are sold each month? $_______________
(f)What will be the monthly operating income if 3,000 units are sold each month? $_______________

Accepted Answer

(a)$26 per unit (b)2

Question 10

How will a company's contribution margin be affected by an investment in equipment that increases fixed costs in order to achieve a reduction in direct labor cost?

Accepted Answer

A) Contribution margin will increase. 
B) Contribution margin will fall. 
C) Contribution margin will either increase or decrease depending on the relative magnitudes of the changes in fixed and variable costs. 
D) Contribution margin will remain the same. 
A) Contribution margin will increase. 
B) Contribution margin will fall. 
C) Contribution margin will either increase or decrease depending on the relative magnitudes of the changes in fixed and variable costs. 
D) Contribution margin will remain the same.

Question 11

One characteristic common to all types of costs is the tendency to rise and fall in direct proportion to changes in the volume of business output.

Accepted Answer

A) True 
 B)False

Question 12

If a product sells for $8,variable costs are $6 and fixed costs are $150,000,what would total sales have to be in order to break-even?

Accepted Answer

A) $390,000. 
B) $399,999. 
C) $600,000. 
D) $699,999. 
A) $390,000. 
B) $399,999. 
C) $600,000. 
D) $699,999.

Question 13

Costs which increase in total amount in direct proportion to an increase in output are called variable costs.

Accepted Answer

A) True 
 B)False

Question 14

If the unit sales price is $14,variable costs are $7 per unit and fixed costs are $42,000,how many units must be sold to earn an income of $250,000? (Round your final answer to the next whole number.)

Accepted Answer

A) 52,142 units. 
B) 41,715 units. 
C) 34,762 units. 
D) 29,796 units. 
A) 52,142 units. 
B) 41,715 units. 
C) 34,762 units. 
D) 29,796 units.

Question 15

A company with monthly fixed costs of $170,000 expects to earn monthly operating income of $25,000 by selling 6,500 units per month.What is the company's expected unit contribution margin?

Accepted Answer

A) $30 per unit. 
B) $26 per unit. 
C) $22 per unit. 
D) The information given is insufficient to determine unit contribution margin. 
A) $30 per unit. 
B) $26 per unit. 
C) $22 per unit. 
D) The information given is insufficient to determine unit contribution margin.

Question 16

All other things held constant,how will an increase in selling price affect the break-even point measured in units?

Accepted Answer

A) The break-even point will decrease. 
B) The break-even point will increase. 
C) The break-even point will remain constant. 
D) The effect on the break-even point can't be predicted with certainty. 
A) The break-even point will decrease. 
B) The break-even point will increase. 
C) The break-even point will remain constant. 
D) The effect on the break-even point can't be predicted with certainty.

Question 17

Relevant range
What is meant by the phrase relevant range of activity?

Accepted Answer

The relevant range represents the operat

Question 18

Cost-volume-profit relationships
Spotless,Inc.,sells only one product.The sales price per unit is $50,with variable cost per unit of $40.Fixed costs are $60,000 per month.Maximum capacity is 34,000 units per month.Answer the following questions:
(a)To break-even,how many units must Spotless,sell per month? _______________ units
(b)If Spotless,Inc.,sold 25,000 units,what would be its operating income for the month? $________________
(c)At present capacity,what is the maximum operating income Spotless,can expect to earn per month? $________________
(d)Assuming that direct labor cost can be reduced by $2 per unit,what would the maximum operating income be per month? $_______________

Accepted Answer

(a)6,000 units (b)$1

Question 19

A company with an operating income of $72,000 and a contribution margin ratio of 56% has a margin of safety of: (rounded)

Accepted Answer

A) $40,320. 
B) $128,571. 
C) $163,636. 
D) It is not possible to determine the margin of safety from the information provideD.$72,000/.56 = $128,571 
A) $40,320. 
B) $128,571. 
C) $163,636. 
D) It is not possible to determine the margin of safety from the information provideD.$72,000/.56 = $128,571

Question 20

When volume increases,fixed cost per unit:

Accepted Answer

A) Increases. 
B) Decreases. 
C) Stays the same. 
D) Increases or decreases,depending upon the situation. 
A) Increases. 
B) Decreases. 
C) Stays the same. 
D) Increases or decreases,depending upon the situation.

Exam 20: Cost-Volume-Profit Analysis

The break-even point is the level of activity at which operating income is equal to cost of goods sold.

In the area of cost-volume-profit analysis,the contribution margin ratio shows how much each dollar of sales contributes to:

Variable costs would include:

Which of the following is an example of a fixed cost for an airline?

The contribution margin ratio is computed as:

The Davidson Company's breakeven point in units is 40,000.Assuming that variable costs are 60% and fixed costs are $300,000,what is the company's projected operating income if sales are $1,000,000?

Economies of scale can be achieved by using facilities more intensively.

How will a company's contribution margin be affected by an investment in equipment that increases fixed costs in order to achieve a reduction in direct labor cost?

One characteristic common to all types of costs is the tendency to rise and fall in direct proportion to changes in the volume of business output.

If a product sells for $8,variable costs are $6 and fixed costs are $150,000,what would total sales have to be in order to break-even?

Costs which increase in total amount in direct proportion to an increase in output are called variable costs.

If the unit sales price is $14,variable costs are $7 per unit and fixed costs are $42,000,how many units must be sold to earn an income of $250,000? (Round your final answer to the next whole number.)

A company with monthly fixed costs of $170,000 expects to earn monthly operating income of $25,000 by selling 6,500 units per month.What is the company's expected unit contribution margin?

All other things held constant,how will an increase in selling price affect the break-even point measured in units?

Relevant range What is meant by the phrase relevant range of activity?

A company with an operating income of $72,000 and a contribution margin ratio of 56% has a margin of safety of: (rounded)

When volume increases,fixed cost per unit:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values

Filters